Employers predict pay awards at 2% for 2016

Private-sector employers expect to give their employees a pay rise of 2% in 2016, according to XpertHR’s latest survey of pay forecasts.

Questioning employers on their intentions for pay awards due to take effect between 1 March 2016 and 28 February 2017, the median pay award cited was 2%, with half of pay awards expected to be worth between 1.5% and 3%. More than a quarter (28.5%) of pay awards are expected to be at exactly 2%, demonstrating the dominance of this figure in the range of awards.

These figures are in line with the latest readings from XpertHR, which has recorded a median 2% pay award in the private sector in the three months to the end of February 2016. On a rolling quarterly measure, pay awards have been worth 2% in every rolling quarter since the three months to the end of April 2014.

The forecast pay awards are above the expected level of inflation for the year. Retail prices index (RPI) inflation – still the most common measure for pay setters – is expected to be at 1.7% over the course of 2016 (OBR forecast). Employees are therefore receiving a real terms increase in pay (albeit following five years of below inflation rises between December 2009 and October 2014).

There is, of course, a different picture in the public sector, where employees are subject to the Government’s policy of pay awards worth 1%. Pay awards in the public and private sectors have not been worth the same since March 2007. The gap between the two sectors looks set to remain for the foreseeable future following the Chancellor’s July 2015 announcement that public-sector pay awards will be “1% per year for the next four years”. In the NHS, around 1.5 million employees will receive a 1% pay increase from 1 April 2016.

However, across the economy some employees will receive a pay rise well in excess of the 2% benchmark. Those paid at the national minimum wage level will receive a 3.7% pay boost following the announcement that the hourly rate for 21- to 24-year-olds will increase from £6.70 to £6.95 from 1 October 2016. Employees aged 25 and over will move to the new national living wage rate of £7.20 an hour from 1 April 2016.

XpertHR pay and benefits editor Sheila Attwood said:

Pay awards are set to remain subdued for yet another year, and a long way off the nearly 4% rise recorded just before the recession hit at the end of 2008. The labour market is creating pinch points around particular skills and roles, which employers are having to address through additional pay in order to recruit and retain the candidates they need.

Additional pressure from an above-inflation increase to the national minimum wage in October only serves to reinforce our view that the headline pay award will not rise above 2% this year.